Tom's Donuts Can Invest in a New Espresso Machine That

question 197

Multiple Choice

Tom's Donuts can invest in a new espresso machine that costs $300 and will yield expected profits of $200 each year for two years. At lower interest rates, the present discounted value of profits from the investment

• A) increases.
• B) decreases.
• C) is unchanged.
• D) is indeterminate from the given information.

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Definitions:

Variable Costs

Expenses that change in proportion to the activity of a business, such as material or labor costs related to production levels.

Budgeted Salary

A predetermined amount of money allocated for salaries over a specific period, used for planning and controlling payroll expenses.

Break-even Point

The break-even point is the level of production or sales at which total revenues equal total expenses, resulting in neither profit nor loss.

Variable Costs

Expenses that fluctuate with the level of output or sales, such as raw materials and direct labor, making them distinct from fixed costs.